Module: General Practice
Q106: In the context of credit risk management for SMEs, what does the acronym "RAM" stand for in the internal rating models used by banks?
✅ Correct Answer: A
RAM stands for Risk Assessment Model.
It is a scoring tool or framework used by banks to evaluate the creditworthiness of a borrower.
A typical RAM combines Quantitative Factors (like financial ratios, Liquidity, Leverage) and Qualitative Factors (like management quality, industry outlook, and business vintage). The model produces a credit rating (e.g., "SME-3" or "BB"), which determines the loan interest rate and sanction limit.
It is a scoring tool or framework used by banks to evaluate the creditworthiness of a borrower.
A typical RAM combines Quantitative Factors (like financial ratios, Liquidity, Leverage) and Qualitative Factors (like management quality, industry outlook, and business vintage). The model produces a credit rating (e.g., "SME-3" or "BB"), which determines the loan interest rate and sanction limit.